Taiwan: Shin Kong Insurance applies to switch to fair-value accounting

| 05 Jun 2020

Shin Kong Financial Holding Co's board of directors have approved its insurance unit's proposal to use fair-value accounting rather than cost accounting to assess non-self-use properties.

Consequently, the Financial Supervisory Commission (FSC) is reviewing Shin Kong Life Insurance’s application to use fair-value accounting to assess its investment properties, reported The Taipei Times.

Fair-value accounting estimates real estate based on market value, while the cost method calculates assets based on their original cost.

To date, five major insurers have adopted the fair-value method — Cathay Life Insurance, Fubon Life Insurance , Nan Shan Life Insurance , China Life Insurance and Mercuries Life Insurance — according to the SFC.

“Life insurers would need our approval if they want to adopt different accounting standards. Shin Kong Life has filed its application, and we are still reviewing its documents,” Insurance Bureau deputy director-general Wang Li-hui told a news conference.

The proposed change came after the life insurer saw its equity-to-asset ratio drop to 2.33% at the end of March, below the commission’s requirement of 3%.

The regulator monitors life insurers’ equity-to-asset ratio twice a year: at the end of June and at the end of December.

If an insurer’s equity-to-asset ratio remains below 3%, the SFC can limit their operations the following year, according to the Insurance Act.

Shin Kong Life hopes that its net worth will grow using the new accounting method.

By using fair-value accounting, the value of Shin Kong Life’s non-self-use real estate would rise to NT$186.3bn ($6.2bn), NT$53.5bn higher than the NT$132.8bn it estimated using cost accounting, Shin Kong Financial told an investors’ conference. Shin Kong Life also plans to book NT$46.8bn of the increase in its net worth, which would raise its equity-to-asset ratio by 1.5 percentage points, climbing above 3%, it said.

“It would be fairer to compare our net worth with those of other peers, as other major life insurers have adopted the fair-value method,” Shin Kong Financial senior vice president Sunny Hsu said by telephone.


For more articles on retirement:

Asian market falls behind in terms of pension systems- Allianz Global Pension Report 2020

Hong Kong: HSBC launches whole-of-life plan designed for commercial customers

What are your parents' financial plans? - Kenny Tey


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